Acudeen: The face of financial inclusion

The young ones are really lording it over with technology-driven businesses that do not require so much capital, but many venture capitalists would love to pour their funds into.

Acudeen Technologies, Inc. founder and CEO Mario Jordan Fetalino III or Magellan as we call this young man belongs to a particular batch of millennials, perhaps older, who do not have the usual brand of entitlement other millennials have been wearing as a birthright.

Magellan, with his feet firmly planted on the ground, has the courage to challenge the establishment on hopes his messianic concept can bring the right face to the elusive dream of financial inclusion for all small businesses.

The company

Magellan has learned to appreciate the need for capital of the small and medium enterprises (SMEs) after working with his aunt in the medical publishing business in 2013 up to 2015 where he handled content for both print and online.

During those days, he realized how hard it was for small companies to collect payments from bigger companies they supply materials or services. And this affected their cash flow and stunted their growth.

“I had to deal with clients somehow and we realized we get paid so late and 90-day term becomes 120 to 150 days and that has very big impact to cash flow,” says Magellan noting that while companies could be asset rich, but if they are cash poor they will have a hard time advancing.

This happened, he found out in his research, because small companies, which are supplying to big corporations, are at the mercy of the giants as to when they can be fully paid.

According to Magellan, only 11 percent of large companies pay on time. This has gotten worse to only 8 percent in 2017.

Small firms cannot even penalize the big firms because how can a small player fight the giant, which is the source of their business in the first place. SMEs cannot also go to banks for financing because they cannot put up hard collaterals and processing can be tedious.

So, their number one refuge is the very accessible loan shark, who is just lurking around for its prey, where money is given right away with no collaterals and documentation, just exorbitant interest rates of 20-30 percent a month.

This gave Magellan the idea to tweak around the issue of receivables of these SMEs so they can turn around and use these as good collaterals.

“Why these SMEs with receivables cannot use them as form of financing when these have been prevalent before in Binondo in the so-called invoice discounting or re-discounting as a method of getting cash ahead of actual payments,” asks Magellan.

This is where Acudeen is trying to fit in. Acudeen will buy these receivables. For instance, if the P100-receivable is due in 90 days, Acudeen can sell the receivable and pay the SME P95, and keep the P5 or 5 percent of that.

Of the 5 percent discount of the P100 receivables, the financing partner gets P4 and Acudeen P1 as they don’t carry the credit risk, it is the funder.

“We get 1 percent plus fee for the portal use,” he adds. “That makes good economics.”

In January, 2016, Magellan joined a startup incubator called the Founder Institute. There, he met Mario Salazar, a balikbayan who worked in Singapore for over five years and now wants to have his own business. Salazar’s background is in banking technology and when he was in Singapore, he worked for a company that provided software support for the Development Bank of Singapore.

Acudeen’s business model promises clients quick registration and fast payments of their receivables

“That’s where we started to feel the synergy. I understand the problem, I understand supply chain and Mario understands banking technology. We felt it would work best if we would do it together. This is how a millennial and OFW solve financial inclusion,” says Magellan.

Actually, Acudeen does not have any English equivalent, but by phonetics it sounds like the Filipinos way of saying “me too” (Ako din). But his research has shown that Acudeen is something of a Latin-based word that is correlated to the meaning of inclusion.

“We got the trademark for that, so I won the word,” he claims.

To make its concept work, Acudeen has also tied up with financing partners. Now they have Rizal Microbank, RCBC’s micro financing arm. They are also supported by UnionBank.

Everything starts from their online portal. An SME goes to the Acudeen portal and input all the required business details that will be reviewed by Acudeen. Once approved, the SME will give a list of clients where, after review, Acudeen will decide which clients it can buy invoices. The SME will then start uploading the invoices of the chosen clients to Acudeen. Once verified, Acudeen can start selling these receivables to its financing partners.

Magellan said the SMEs get the money in five days, but with the use of technology they can bring it down to 24 hours.

Market

As of end 2017, Acudeen has more than 500 SME clients already. On the average, per invoice involves P100,000 worth of receivables.

Magellan expects the 500 SMEs to reach $25 million in receivables or P1.5 billion. In 2017, Acudeen was able to buy over P300 million only.

“That is freeing up the credit lines especially for SMEs who have no access to bank financing at all but only their family, a friend or the informal lending or the 5-6,” says Magellan.

“It is unfortunate because our GDP growth is driven by SMEs, but this sector does not get financing help from the formal sector.”

“And we believe that the SME problem is not unique to the Philippines, but global,” he adds as he sees big potential for this venture, not just locally but overseas. The Philippines is just the tip of the iceberg, so to speak.

From only barely two years of existence, Acudeen recently launched in Myanmar, which he described as the Philippines in the ‘90s. But unlike the Philippines, which had long been adopting to the digital world, Myanmar was able to leap frog immediately to the digital world without going through the initial stages of the Internet, enabling the country to catch up with the already advanced Philippines.

“So, Myanmar is a good opportunity for young players like us,” he adds.

The target is to be in 5 countries in Southeast Asia by 2019. Magellan is targeting Vietnam, Malaysia and Indonesia in addition to Philippines and Myanmar.

According Magellan, the ASEAN market has an estimated $500 billion worth of SME receivables, giving his business that long term and wider horizon. For Philippine-based SMEs alone, the estimated addressable receivables market is $40 billion.

The long-term vision of Acudeen is to be the main financing source for SMEs in emerging markets in Asia, Africa and Latin America.

“We want to be the main driver of growth across three continents,” he adds.

“We barely touch the market and we really have the vision of really helping out the small businesses,” says the 26-year-old Magellan. He further said that 35 percent of an SME’s balance sheet are unutilized receivables, meaning overdue receivables that cannot be used and cannot be liquidated.

With Acudeen, they can free up these receivables and help SMEs sustain and grow their operations.

Large companies, too, have huge receivables but they would rather concentrate on the SMEs. The next target is going down the pyramid, meaning the suppliers of the SMEs which could reach thousands, including suppliers of fresh goods to supermarkets. These are the low-hanging fruits for the persistent entrepreneur.

“We are in constant discussion with the Securities and Exchange Commission and the International Finance Corp. because we want to create a better infrastructure financing for SMEs,” says Magellan.

In addition, Acudeen would like to push for responsible corporations in dealing with small suppliers, that they don’t have to put these SMEs at their mercy just because they are big.

“We want to push in terms of policy making and infrastructure so we are very involved with the government,” he adds.

Acudeen is also partnering with business associations to educate members about the value of having a platform like Acudeen that support their businesses. To promote its digital platform, they do regional roadshows, try to understand issues and problems of SMEs.

Inclusion

Actually, Magellan sees their role as agent of financial inclusion.

“I have this messianic concept to save the small business. That is why that vision is carefully embedded in the design of our program to help these people,” he adds.

He noted that re-discounting was working efficiently before in Binondo, the alternative central bank, because of the weak financing sector. This time, however, business is moving away from checks issuances so there is no formal process anymore to discount.

The problem now, he said, is that banks prefer to lend only to big companies because it is more valued compared to the huge operational cost if they cater to small businesses.

“Banks would rather transact with millions worth of transactions than cater to a per invoice of P100,000,” says Magellan, who earned a degree in entrepreneurship at the University of Sto. Tomas. He also dreams of one day completing his master’s degree on entrepreneurship at the Ateneo de Manila University.

Acudeen is also establishing good relations with companies to entice them to trust them to sell their receivables. There is not much earning from their kind of business unlike those micro financing institutions that cater to consumer lending, personal loans and credit cards where interest rate is high.

“But when it comes to payments to SMEs, this is where we lost it, nobody is looking after how they can sustain their operations when they run out of cash because they cannot collect,” he adds.

Technology

With the use of technology, Acudeen is able to charge very low rates because its cost is fixed.

At present, they have 50 people, majority of whom are technology people engage in design development and software programming. But the Philippine headquarter is expected to reach 70 people this year as they go full blast with their transactions online.

“We’re the only technology platform that does this in the Philippines,” says Magellan adding that other countries, especially the developed economies do not have the patience to do what they are doing because it is a high volume but low margin kind of transaction, so tedious and takes a lot of time.

In fact, the whole of 2016 was spent only for the development of the framework, and putting up a database. “So, lots of firms would rather work and partner with us than compete against us,” says Magellan.

Acudeen also started with a modest capital of P50 million that they raised from investors, including its Chairman JJ Atencio of 8990 Holdings and other key investors and some angel investors from Singapore and Switzerland. He expects to achieve a return on investment in three years.

For his part, it was all “sweat equity” contribution. What is important though is they have a very strong and big vision that is going strong because they are able to attract good people to help run the business.

“Right now, our KPI is growth so we focus on getting customers,” he adds noting that they are targeting to put onboard 10,000 customers, although their key matrix is both customers and number of number of transactions.

From P300 million worth of transactions on its full year last year, they are looking at P1.5 billion worth of transactions this year. There will be additional revenue stream from Myanmar where they have 4 Filipinos and some locals, although Myanmar is expected to grow to 18-man team within the year.

Leader

Magellan, son of veteran journalist Dennis Fetalino, is ahead of his age. At 26 years old, he has a good grasp of how he should be as a leader in a tech start-up with 28 years old as the average employee average.

“It is very difficult especially when you have mixed people with different personalities and different mindset. So, the main role of the CEO is to make these people work together as one unit,” says Magellan, who also values an iron hand kind of management to be able to instill discipline on everyone and at the same time balance it with a soft skills approach.

“I am a firm believer of delegation than management because I know for a fact that I cannot do it alone so I get people to help me achieve those targets because I am no technology guy, I don’t code. I want people to own the job and have a sense of fulfillment that this happens because this is my work, I did not just follow orders,” he adds.

They have very experienced people from finance, marketing and operations men, but majority are technology people.

Had it not for these people, Magellan said, he would not have been able to push through with his vision. He cited his chief technology officer Salazar as one of his key guys.

Coming from a family of journalists has developed his public relations skills to capture people with his vision, which is important for an entrepreneur.

As an entrepreneur, Magellan works 24×7. Already, his hard work has paid off. Acudeen has won the Seedstars Global Award, a competition for tech start-ups, last year that earned them the respect of some angel investors.

During his spare time, Magellan reads books or watch documentaries on politics, business and military because “I like having a sense of how people think, how other people strategize.”

He looks up to his Chairman Atencio because more than being a boss he knows how to nourish people. “I was surprised to know he helped more than 20 businesses that he believes in because he likes to support business. More than the financial, he nourishes them with insights,” he said. He also looks up to Elon Musk of Tesla for his full support behind some ventures that he believes in.

“We need that kind of investor, not just dole out but someone who goes behind your back to guide you,” he adds.

His work as communications officer of Senator Panfilo Lacson has also taught him discipline. Before he joined Lacson, he was sporting long hair trying to belong to the artistic side, but with the senator he learned the importance of discipline and to be a leader by example.

Driven by a messianic complex for the SMEs, Magellan is leading by example, and proving that financial inclusion is real at Acudeen.